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Derek Lowe The 2002 Model

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Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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July 16, 2007

European Drugs, American Drugs

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Posted by Derek

I don't know how many people here in the US have noticed, but the European Community is getting worried about how well its member countries are doing in drug research. Their Pharmaceutical Forum group has met twice so far, trying to recommend changes in drug pricing, rewards for innovation, information transfer to patients, and other areas.

I'll let one of the co-chairmen, Guenter Verheugen, explain the problem:

". . .The time has passed that Europe was the pharmacy of the world. True, our industry still has an inherent strength. But we are losing competitive ground to the United States and, increasingly, to China, India, Singapore and others. There are many worrying signals. Let me mention just two:

First, the widening gap in pharmaceutical research: Over the last 15 years investment in pharmaceutical R&D has been growing in the US significantly and consistently faster than in Europe.

Second, the development of key medicines: In the past, Europe was leading in developing the most successful breakthrough pharmaceuticals. This trend has reversed. In 2004, two thirds of the 30 top selling medicines in the world were developed in the USA."

All of the things the group is looking at seem worthwhile. But I wonder how many of them will do anything to actually change that trend? Phrases like "fair reward for innovation" and "alternative pricing and reimbursement mechanisms" point to one that might. These seem to be carefully worded calls to let the drug companies make a bit more money, in the hopes that they might find it worthwhile to make some more drugs.

That's bound to help. It's true that the United States market is where the money is made in this business, and it can't be a coincidence that this is where a lot of the innovation is coming from. But you can always develop a drug in Europe and sell it in the US, right? No, I think that there are other factors at work, cultural ones that no high-level multinational task force is going to pin down.

Perhaps I think this way because I used to work for a European company, and now work in Cambridge (home of a zillion startups). But I've long thought that there's a different attitude to research and development in this country, a greater willingness to try odd ideas and to put money behind them. I'm not saying that you don't find innovation in Europe, because you certainly can. But I think that innovators have, on the average, an easier time getting funded and being taken seriously over here. It's not a huge difference, but it's a steady one, and it's been compounding over time.

Comments (21) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Who Discovers and Why


1. Canuck Chemist on July 16, 2007 9:49 PM writes...

The Europeans are most certainly risk-averse. Most European scientists I have worked with in North America return to join one of the giant hulking conglomerates (e.g. BASF). Government red tape and heavy taxation in many countries certainly do not make it easy for new ventures. I'm amazed when I see that in a country like France, more than one half of young people desire a job in the civil service (presumably because of the chance for a cushy job for life, and perhaps a lack of good opportunities elsewhere). Until these cultural norms change, these countries (I'm thinking primarily of France and Germany) will keep falling behind, especially in the face of increased competition from Asia. It's a shame, because the European countries have so much more to offer (arguably) over the U.S. in terms of quality of life.

I'm not one who believes that we're fighting over a "pie" of a limited size, so I hope things improve for Europe in terms of innovation and successful new ventures.

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2. milkshake on July 16, 2007 11:28 PM writes...

Pharma business in US is not healthy either - just look at what was going on in the last four years - and I don't think it's over yet. (Also, it is hard to call big pharma companies as European or american, regardless of where their head quarters are located.)

The problem in Europe begins with university academic research funding. Red tape when starting company, hiring and firing people and the hidden employment tax is just compounds the problem.

Also, chemists are relatively cheap and plentiful but good biologists are precious. Without sound biology and PK all the work in drug discovery makes no difference. I think a lack of good biology research in China, India is the only thing that keeps the medicinal chemistry from being outsourced from US.

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3. UK Chemist on July 17, 2007 4:10 AM writes...

In my opinion, part of the problem lies (in the UK at any rate) in the transfer of technology out of universities and the difficulty that researchers have in finding interest and capital to start up new ventures. For example here in the UK, The Medical Research Council runs a globally recognised, cutting edge Protein Phosphorylation Unit, obviously looking at kinases and phosphatases in general. The unit is based in Dundee, which is globally recognised as having very strong research programs across the biological sciences.

So, take a guess, how many start-up companies looking at small molecule kinase inhibitors do you think have been founded based on this research, and that are based in the Dundee area?

AFAIK, there is only one, Cyclacel. I have little doubt that if this MRC research centre was American, there would be dozens of companies in the area. A shameful reflection of innovation in the UK

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4. TW Andrews on July 17, 2007 9:15 AM writes...

I think it's pretty telling too, that of the big companies remaining in Europe, two of the biggest (Roche and Novartis) are located in business friendly (relative to their neighbors anyway) Switzerland.

Looking at the top 10 largest Pharma, five are American, two are Swiss, two are English (though AZ is half Swedish) one is French and none are German. And the beautiful remodeled candy factory in Cambridge speaks to the attractiveness of doing research in the US even for a successful Swiss company like Novartis.

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5. Tyrosine on July 17, 2007 9:41 AM writes...

Certainly with startups, the success in the US can be largely attributed to the attitudes and risk-loving tendencies of the venture capitalists. If you can't convince people to invest in your risky idea (millions of $$, low chance of success, and years before any reward), you don't have a company. To me, big pharma is big pharma regardless of which continent the company is located on and can do equally well.

I know this will be an unpopular opinion on this board but I feel society needs to ask itself, at what point does it cost too much money to deliver a higher standard of healthcare? With rising healthcare costs eating ~15-17% of GDP and estimated to go even higher, it seems few americans ever ask themselves whether there should be a limit. If a drug extends the life of someone by 5 years and costs $250,000, is it worth it? By today's medicare and insurance standards, that seems to be okay (look at almost any of Genzyme's products' costs and clinical data). What about if a drug extends a life by 6 months and costs $1,000,000, is it worth it? There is certainly a limit and society cannot afford to cover everything (I say society even in the private US system since the insurance system distributes costs to everyone). Americans have a sense of entitlement to the highest standards of care which inevitably will come to an end (hopefully before healthcare eats up 100% of our GDP).

I am a researcher in the pharmaceutical industry and I was 100% on the side of "drugs are expensive because they are hard to make" and "regulation decreases innovation and deprives us of future drugs". However I am now of the belief that like most things in life, the best answer is in the middle. We cannot afford to pay for every innovation that comes out and must choose which ones are worth it.

Just my two cents, thanks for reading with an open mind.

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6. Wavefunction on July 17, 2007 11:35 AM writes...

It's always amusing to me; EU says it's losing ground to US, US says it's losing ground to India, India says it's losing ground to China and so on...I think all of us are losing ground to each other. Alternatively, the world (or universe) as a whole is gaining ground.

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7. Still Scared of Dinosaurs on July 17, 2007 1:29 PM writes...

This seems so counterintuitive that I fear I might have it backwards, but I was told when working in a company at the venture stage that while EU venture is more risk averse than US they were more generous with their money when they did buy in. Please enlighten me if wrong on this point.
And while on the subject of my potentially garbled thought processes, per UKC's point about technology transfer, I've often wondered why some of it needs to be "transferred" at all. I understand that research institutions want to share in the profits generated by discoveries made on their soil, but when the funding for those discoveries derives from the government wouldn't the taxpayers be better off if everyone could avail themselves of all of them to make new medicines?
I'm not talking about specific drugs or manufacturing methods, which I would expect would pretty much always be developed by private companies, but the most generic of things that come out of basic research and sometimes lock others out of a broad range of possible applications.

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8. frankie on July 17, 2007 2:01 PM writes...

The main difference between the US and Europe is indeed the much more risk friendly start-up scene in the US. The big pharmaceutical companies are the same pretty much everywhere.

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9. DCRogers on July 17, 2007 2:38 PM writes...

Call me a contrarian, but I don't buy the "already spending X% of GDP on health care" argument as a necessary reason to put on the brakes. Getting older, what would you RATHER spend your money on if you were sick? A yacht?

And at least for pharmaceuticals, a success is forever; we're creating wealth for eternity, unlike, say, spending on oil for your SUV or surgery costs. While I certainly think we need to do a lot to control health-care costs, if I had my druthers, I'd try to find ways to spend even more on creating more drugs, even if it took more GDP-points. Many people not even born will thank us years from now! (As will China, India, ...)

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10. MikeS on July 17, 2007 2:57 PM writes...

Still Scared of Dinosaurs,

Regarding tech transfer, the original rationale behind the Bayh-Dole Act was that federally-funded inventions were being because industry was hesitant to invest in early-stage technology unless they could lock in some competitive advantage through ownership of the underlying IP, not because universities wanted to cash in.

Whether this assumption is true or not on average I think depends on whether the federally-funded IP is likely to need significant further development before commercialization. If it does, it makes more sense to allow a company to license the IP rather than making it free to all. So, for example, a preclinical lead compound that comes out of academia needs to have its associated IP licensed in order that someone would have an incentive to do the $.5-1 billion in development, whereas an new assay technique may not need such IP transfer to be successfully commercialized.

Like many areas of IP law, there are of course many different facets of this issue, and no good metrics for whether the US system is as efficent as it could be, so this is a very hotly debated subject in patent law circles.

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11. Klug on July 17, 2007 3:50 PM writes...

MikeS: Are you the same that comments over at Ezra Klein's?

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12. MikeS on July 17, 2007 4:30 PM writes...


Yes. If I recall correctly, I found this blog through your comment over there, so thanks for that.

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13. Great Molecular Crapshoot on July 17, 2007 5:42 PM writes...

In the crapshoot (filed under 'organisational'), I've likened the way big pharma is run to the centrally planned economies of the old soviet bloc. I believe this be a more of a problem in Europe than in America. But it is still a problem in America.

One asymmetry between America and Europe is that the most important regulatory body for the industry is an American organisation. Could this make the Europeans more cautious?

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14. Still Scared of Dinosaurs on July 17, 2007 6:04 PM writes...

Thanks for the insight. Though the original motivation may not have been from the universities, I wonder how they would react if patent applications had to undergo review by some type of NIH/FDA/AMA/whatever board to decide if the taxpayers would be better off with or without a given discovery being given patent protection. Not that such a board would have much of a life span. They aren't shy about demanding ownership of patents on any work they "pay" for.
As to lead compound versus assay, what really concerns me is in the middle. I've been told that half the mfr costs for biologics usually goes to patent licensing. Not a reliable figure, I grant you, and I'm sure even if roughly true a lot of that would be for patents on privately funded technologies. I wonder, though, how much money goes out in such cases just to cover patents on discoveries that were made with public funding and, if it accounts for very much, how it can be claimed that we the taxpayers are better off?
Thanks again for chiming in.

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15. Klug on July 17, 2007 7:41 PM writes...

You're welcome, Mike. I've admired the level of detail on IP and reasonableness that you add to the debate over there. It can get hairy.

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16. Crest on July 19, 2007 8:08 AM writes...

I think the US leads in it's flexibility and appreciation of Science. A lot of Europe is sceptical - it's in decline in the UK - because it tends to be controlled either by a chief beancounter, who is responsible to the shareholders and wants nothing more than more profits this month, or it's wrapped up in layers of governmental red-tape, like on mainland Europe.

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17. Jonadab the Unsightly One on July 21, 2007 11:15 AM writes...


Not a yacht, certainly, but I can definitely think of some things. I'm not saying I wouldn't spend money on medical treatment, but at some point the law of diminishing returns does eventually kick in, and I tend to think we're just about getting there.

And regarding the continued availability of older drugs, that's true, but they only continue to cost bazillions of dollars for a few years (generally about twenty or so; patent duration might have something to do with this), so in terms of GDP percentage it's not so much a question of how many drugs have been developed total as it is a question of how many have been developed *recently*, i.e., the rate at which new drugs are developed. In other words, while I certainly don't think we're at a point where we should stop developing new drugs (quite the contrary), but maybe we're developing them just about as quickly (or just about as many simultaneously) as the economy can handle.

Then there's the question of how best to spend the money. Even from purely a perspective of getting the most and best drugs developed, it still may not be best to pour unlimited resources into pharma directly. From an individual pharmaceutical company's perspective, it may be most economic in the short term to put all R&D spending directly into drug development as such, but over the long term it might be more fruitful to put some of that money into other research. Consider for instance the proteomics thread from this very blog not long ago: how much easier would development of cancer drugs (just for instance) be if we understood what was really going on in cancer cells at the molecular level? Perhaps less obviously, how much easier would development of new drugs be if we had more knowledge in general, e.g., better materials science, better knowledge of particle physics, or even better software? If we spend too much of the GDP directly on new drug discovery, we will neglect those other areas, and long-term that could actually harm the field of medicine.

In other words, yes, it is certainly worthwhile to put some money into drug development, but on the other hand you do have to have balance.

The difficult question, of course, is exactly where to draw the line. Like I said, I tend to think we're getting pretty close to where it should be drawn. Some people might draw the line higher, maybe at 40% of GDP or even more, but that's a matter of degree.

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18. Henry Cunningham on August 2, 2007 1:09 PM writes...

I dont know what a URL is so maybe this comment won't even be added to the blog.
I am just a retiree wondering if:
European countries produce as many new drugs for diabetes, heart problems, cancer treatment as the US does
Europe, or Asia, have developed more treatment "drugs" using stem cell research than the US has?
Just saw Sicko and wonder how true the statements re child mortality and longevity are.

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19. Madhu on November 5, 2008 8:06 AM writes...

Can anyone here tell me the list drugs originated form Europe? thats very strangulation things i believe

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20. name on June 28, 2009 3:54 AM writes...

I want to say thanks!,

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21. name on February 13, 2011 7:28 PM writes...

Good Job,

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